Question-and-Answer Session
Operator
Thank you. (Operator Instructions). We'll take our first question from Mike Weinstein with JPMorgan.
Mike Weinstein - JPMorgan
Thanks. Thanks for taking the question guys. Could you start on the gross margin line and just maybe flush out for us a couple of different items that were impacting that, particularly the FFR upgrades that we have been assuming that would be more spread out over the first half of, in fact it was more in the first quarter than we had modeled?
John Dahldorf
Yeah, the impacts, we planning on doing about 1,500. We're running a little bit ahead of plan as far as the actual number, which is a good thing. Because as soon as that we can get those units upgraded, obviously as soon as our customer has the ability to run the FFR. And so, I could say we are running a little bit ahead there.
As we mentioned, the Axsun business and the step-up charge from accounting is impacted the margin. And the margin actually is really kind of within the plans that we had setout, when we setout our original guidance of 60 to 62%. So, as far as management is concerned, there is really no surprises. Probably, the only other thing that did affect margin that it was really kind of outside of our control and initial guidance was the $1.3 million of unfavorable FX that we had on the euro that drops down to the margin line. But in spite of that we still believe that we can hit 60 to 62%.
Mike Weinstein - JPMorgan
Okay. Just to make sure we're clear onto the... obviously, it's the onetime inventory step-up. The FFR impact I guess will be relatively minimal in the second quarter than non-exist in the third. Am I assuming that right?
John Dahldorf
Yeah. I mean it will be less in the second quarter, and it will be non-existed in the third and fourth quarters.
Mike Weinstein - JPMorgan
Is there any thoughts on where you exit the year with gross margins?
John Dahldorf
Yeah. I believe we'll be in the 60 to 62% range. And so, I expect gross margin to specially in the second half of the year once we get beyond the FFR upgrade and once we start to get some traction from the direct sales initiatives in Japan. I expect margin to grow and I expect us to be exiting the year probably in access of 62%.
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